Trading Snap Ahead Of Earnings

Snap (SNAP) is set to release its first set of quarterly results, after recently launching its IPO in March. The amount of ad revenue to be reported will be key to determine how well the business is moving along. Snap will have to overcome two major competitors in hopes of maintaining its spot in the social media space.

First Report

Snap will be presenting its first earnings report as a public company on Wednesday. The consensus raised by analysts is that it will report $158.1 million in revenue. If that holds true, then it will be a 307% increase year over year.

While the revenue would be up huge, that doesn’t change the fact that the company won’t be profitable. Analysts are expecting a loss of $0.19 per share when the company reports its earnings. The loss is attributable to the cost of maintaining its business. It is forced to spend a lot of cash in order to gain both users and revenue.

This can be observed in the S1 filing when Snap went public. In 2016 alone, the company generated $404.4 million in revenue. That seems really great, but not compared with a number of losses it generated. In that same year, it generated losses totaling $514.6 million.

Ad Revenue

Advertising revenue is an important part of Snap’s business. That is the main source of revenue that the company generates. As noted before, the company produced up to $404.4 million in revenue in the year ending 2016. That figure is six times higher than in 2015, where it only generated $56 million in revenue.

The big jump in ad revenue can be attributed to the fact that it has 158 million daily active users — DAUs. While Snap saw such an explosive growth from 2015 to 2016 in ad revenue, such won’t be the case going forward.

The good news for Snap is that global digital ad revenue around the globe continues to grow well. In 2016, global digital ad revenue grew to $72.5 billion. That is an increase of about 22% from the prior year. To help boost its advertising business Snap launched a new ad platform this week. This new ad platform is known as self-serve ad manager.

The whole point of this new feature is to allow the purchase of access of serving ads through Snapchat without having to deal with Snap itself. That eliminates the step of advertisers having to go through Snap first to serve ads. The elimination of this step might prove to be useful for generating more ad revenue.

Competitors

Snap has a long way to go before it can catch up to major competitors in the space. Even then, it is facing an uphill battle trying to steal market share. The amount of revenue Snap generated in 2016 seems impressive. The problem is that it is miniscule compared to other platforms.

Facebook, for instance, generated $8 billion in revenue just in the first quarter of this year alone. Another larger competitor, Google, generated approximately $25 billion in revenue in the same time period. The difference between Snap and these other competitors are the fact that they have a large amount of cash to diversify into other businesses.

At the time of the IPO Snap generated $1 billion in cash. It is much harder for Snap to compete with this smaller cash pile compared to other platforms. Another platform competing directly with Snap would be Facebook’s Instagram business. Instagram has been heavily competing against Snap. Instagram has even gone as far as to copy features from Snap. One of these features, known as Stories, has been copied completely.

It has been stated that as soon as the Stories feature was copied on Instagram, the growth of Snap’s 158 million DAUs had been stalled. At the same time Instagram grew to 200 million daily active users. There is no way to know for sure that Snap’s user growth stalling was because of Instagram’s Stories feature, but it does seem to make sense.

What Binary Options Traders Should Watch For

There are a few things that traders should watch.

The first of which is if the revenue figure comes in above analysts’ expectations. The problem is that the revenue number alone won’t be enough to lift the stock. It must also beat out the expected loss of $0.19 per share as well. If Snap beats both numbers then the stock has a chance of trading higher.

The second item would be advertising revenue growth year over year. It would be wise to see if there is a correlation between user growth and ad revenue growth. After all, user growth doesn’t mean much if it doesn’t translate to a boost in advertising revenue.

The final item that traders should keep an eye on would be the competitors themselves. If Snap hopes to remain viable in growing earnings it will have to deal with its competitors. For instance, its Stories feature being copied means that it must adapt. That includes creating new features and avoiding competitors being able to copy them as easily. The growth of daily active users is also important for fending off major competitors.